How COVID-19 is affecting the property rental market

How COVID-19 is affecting the property rental market

Rental markets in Australia have taken a beating from COVID-19, with rents and yields falling in inner city areas, CoreLogic research showed.

Prior to the pandemic in 2019, rental markets were tightening as the levels of property investment and development had reduced, impacting rental supply, according to the firm’s head of research Eliza Owen.

But the rental market has shifted gears thanks to COVID-19. The most significant factors to the changing market are:

  • Closed international borders, pushing down rental demand from new migrants.
  • Job and income losses in sectors where workers are more likely to rent.
  • Added stock as holiday homes are converted to long-term rental accommodation due to the collapse of the travel market.

Which rental markets have been affected by COVID-19?

Suburbs in Sydney, Melbourne and Hobart have been most affected by the nosedive in rents. Out of the top 20 capital city suburbs which have seen the biggest drops, 10 were in Sydney, while Melbourne and Hobart each had five suburbs on the list.

Properties in inner Sydney and inner Melbourne areas have seen the biggest drop in rents.

Rental values in Sydney’s Haymarket suffered the most significant decline nationally, plunging by 7.2 per cent in the three months to June, according to CoreLogic. This was followed by Barangaroo and Melbourne’s Southbank, both seeing rental drops of 7 per cent.

Rents in both the Sydney and Melbourne CBDs dipped by 6.9 per cent.

In Sydney, the median weekly dwelling rent declined by 1.3 per cent to $525 in the three months to June 2020. Weekly unit rents in particular fell by 2.1 per cent in the same period to $525.

Dwelling rents in Melbourne edged down by 1 per cent to $440, with units dropping by 2 per cent to $440 a week.

The median weekly rent across the combined capitals was $460, down 0.7 per cent.

“Investors should note that inner-city unit markets pose a particular risk in the current environment, with rental values likely to fall alongside property values,” Ms Owen wrote in the ANZ-CoreLogic Housing Affordability report.

Gross rental yields are also plummeting in Sydney and Melbourne, where it has fallen by 0.6 per cent and 0.5 per cent respectively in the 12 months to June 2020.

Across the combined capitals, yields have declined by 0.5 per cent in the same period.

How lower levels of rental property supply could hold up rents 

As rents fall amid an uncertain economy and jobs market, investor demand for real estate has dwindled. New investor mortgage activity is at its lowest since January 2019, figures from the Australian Bureau of Statistics (ABS) showed.

The monthly value of investor housing finance commitments dived by 15.6 per cent to $4.2 billion in May 2020. And investor mortgage commitments as a percentage of total housing finance commitments tumbled to 25 per cent in May 2020 from 32 per cent in May 2018.

With less new supply on the rental market, rental market conditions could hold up if the number of investors in the property market remain low.

“Before the onset of the pandemic in Australia, investor participation in the housing market was at its lowest since 2001,” Ms Owen wrote.

“If sustained, this suggests that the decline in demand for rentals could be partially offset by a decline in the supply of rental property.”

Rental listings are already decreasing gradually across the combined capitals. Total rental listings fell by 0.3 per cent when comparing the four weeks to March 15 with the four weeks to June 28, according to CoreLogic. New rent listings dropped by 3.8 per cent when looking at the same periods.

However, in Sydney and Melbourne, supply is on the rise. Melbourne led the hike with rent listings up by 3,730, and Sydney’s listings jumped by 1,043.

It should be noted that the data was released before the new stage four lockdowns in Victoria were announced in early August.

What investors should know in a falling rental market

Many everyday Australians invest in the property market using their life savings to build and retain wealth. Rental market conditions are expected to “directly influence investor demand over the next few years, which could affect both prices and construction”, according to Ms Owen.

But property investors may be less affected during the slump if they:

  • are in the market for the long haul and are ready to hold;
  • have a healthy amount of equity in their property; and
  • have a stable income.

If your tenant has been asking for rent reductions, or if your property is in an area hit by the downturn, you may run the risk of falling into mortgage stress. It may be worth considering refinancing your mortgage to reduce your repayments and improve your cash flow.

But refinancing may not be an option for everyone. If you don’t have enough equity built up in your property, or if you’ve deferred your mortgage, you may not be in a position to refinance. 

Another option is to approach your lender and ask for a rate reduction. Given the generally low interest rates across the board, it’s possible your lender may consider discounting your rate.

Lowest ongoing variable rates on

Lender Advertised rate
Reduce Home Loans


Homestar Finance


Well Home Loans


Mortgage House


Tic Toc


Source: RateCity.

Did you find this helpful? Why not share this news?



Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy


Learn more about home loans

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

What is a building in course of erection loan?

Also known as a construction home loan, a building in course of erection (BICOE) loan loan allows you to draw down funds as a building project advances in order to pay the builders. This option is available on selected variable rate loans.

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

What happens to your mortgage when you die?

There is no hard and fast answer to what will happen to your mortgage when you die as it is largely dependent on what you have set out in your mortgage agreement, your will (if you have one), other assets you may have and if you have insurance. If you have co-signed the mortgage with another person that person will become responsible for the remaining debt when you die.

If the mortgage is in your name only the house will be sold by the bank to cover the remaining debt and your nominated air will receive the remaining sum if there is a difference. If there is a turn in the market and the sale of your house won’t cover the remaining debt the case may go to court and the difference may have to be covered by the sale of other assets.  

If you have a life insurance policy your family may be able to use some of the lump sum payment from this to pay down the remaining mortgage debt. Alternatively, your lender may provide some form of mortgage protection that could assist your family in making repayments following your passing.

Does each product always have the same rating?

No, the rating you see depends on a number of factors and can change as you tell us more about your loan profile and preferences. The reasons you may see a different rating:

  • Lenders have made changes. Our ratings show the relative competitiveness of all the products listed at a given time. As the listing change, so do the ratings.
  • You have updated you profile. If you increase your loan amount, the impact of different rates and fees will change which loans are the lowest cost for you.
  • You adjust your preferences. The more you search for flexible loan features, the more importance we assign to the Flexibility Score. You can also adjust your Flexibility Weighting yourself, which will recalculate the ratings with preference given to more flexible loans.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time.